VAT or no VAT, That is the Question

For the rare uninitiated, VAT is Value Added Tax. For the past few years, more and more countries facing a shortage of revenue have put charter yachts under a microscope as potential sources of additional funds and began collecting VAT on charter fees.

At the Antigua Charter Yacht Show in December, there was a lot of talk of fine foods and wines, great crew and new yachts. But the big question mark of the VAT ruled most lunch conversations. For the rare uninitiated, VAT is Value Added Tax. For the past few years, more and more countries facing a shortage of revenue have put charter yachts under a microscope as potential sources of additional funds and began collecting VAT on charter fees. Italy was one of the first countries to do so. France, as in “Vive la Difference,” managed to elude the change for years and continued as the one nation avoiding enforcement of the EU-wide rules. This was thanks to an exemption in French Law, which was not designed specifically for luxury yachts. But this grace may soon come to a screeching halt.

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The European Commission has formally requested that France remove the VAT exemption pronto, or else. While some believe the change will not be effected in time for the summer charter season, since it is a matter of altering an existing law, others believe that the current French government may be inclined to comply promptly. To add to the uncertainty of the VAT status in France, Croatia, thus far a popular destination with charter yachts thanks to its beauty, is due to join the European Union in a few months. This means it may soon be forced to collect VAT on charters as well.

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What no one yet knows, though, is what amount will these countries collect. There is no European standard yet. Chris Nicholls of AirWave wrote an article on the subject. “The exact details of what rate of VAT may be applied to charter fees in French waters is yet to be determined,” he wrote. “However the speculation has already started as to whether it will be the standard rate of 19.6 percent (with plans of 20 percent by 2014) or a rate based on the size and deemed capabilities of the yacht in question. Therefore, it would not be unreasonable to expect France to take a similar approach to Italy – including the need for yacht-owning companies operating in French waters to seek VAT representation there.”

Until an official answer can be provided to these hefty questions, a few charter managers are already opting to forego a Mediterranean season next summer.